GOP Faces Test on Budget Cuts

By

David Wessel

Updated Nov. 4, 2010 12:01 a.m. ET

Let the spending cuts begin.

That was, after all, what Republicans campaigned on. Ohio's John Boehner, soon to be House speaker, promised "a new approach that hasn't been tried before in Washington—by either party. It starts with cutting spending instead of increasing it." Retiring Sen. Evan Bayh (D., Ind.) says Democrats should back a freeze on federal hiring and pay. Sen. Dick Durbin (D., Ill.) says, "We're going to be giving on spending."

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But as Republican spending cutters move from wooing voters to legislating, they confront two realities: Cutting government spending in general is popular; specific, substantial spending cuts are not. And bringing down the deficit by spending cuts alone, particularly cuts in annually appropriated domestic spending, is, well, arithmetically challenging.

Republicans are not proposing British-style fiscal austerity. Republicans say they won't raise taxes now and will eliminate "the constant threat of new taxes." The new Conservative-led coalition in Britain is raising taxes by $1 for every $3 in spending cuts, including a 2.5-percentage-point increase in the value-added tax to 20% and higher capital-gains tax rates. The Brits are taking aim at government benefits for the middle class, an explosive notion Republicans avoided during the campaign.

The House Republicans' Pledge to America promises to roll back government spending to prerecession levels "with common-sense exceptions for seniors, veterans and our troops" to save $100 billion in the first year.

It promises weekly votes on spending cuts offered by residents at their YouCut website. An example: Save $87.5 million by killing the "Exchanges with Historic Whaling and Trading Partners" program, which the late Sen. Ted Stevens (R., Alaska) protected when presidents of both parties tried to kill it.

With impressive agility, Republicans rode a wave of economic anxiety, anger and hostility toward Democrats. But it's easier to see what the voters were against than for. A Wall Street Journal/NBC News poll asked Americans what one message they wanted to send Congress. Nearly three times as many (21%) said the top priority should be "improving the economy and creating jobs" as said balancing the federal budget (8%.) One inelegantly phrased exit poll Tuesday found 45% favored tax cuts or spending increases to help the economy while 39% made reducing the deficit a higher priority (which, except to some economic alchemists, means tax increases and spending cuts.)

Cutting future government spending—which reduces the size of the inevitable future tax increases—would be good for the vitality of the U.S. economy in the long run. But the International Monetary Fund and most economists say spending cuts hurt a weak economy in the short run, particularly at a moment when the Federal Reserve can't cut interest rates further. Of course, some Republicans sound ready to cut taxes faster than they cut spending. That might provide a jolt of Keynesian fiscal adrenaline; it won't shrink the deficit.

But Republicans, eager to earn the trust of those who voted for them, are likely to pursue spending cuts regardless of political and economic risks. They will quickly realize that cutting unpopular spending—waste, fraud, unspent stimulus, whaling exchanges and bureaucrats—won't suffice if they're serious about the deficit.

President Barack Obama's last budget, as measured by the Congressional Budget Office, projects a $1.25-trillion deficit for fiscal 2020.

Say Congress zeroed out all annually appropriated domestic, nondefense spending, which amounts to about 17% of all federal outlays and excludes benefits such as Social Security and Medicare.

That would mean no air-traffic controllers, tax collectors or cabinet secretaries. No test tubes, lights in federal buildings or federal job-training grants. The deficit in 2020? Still uncomfortably large: $668 billion and growing, according to estimates by the Committee for a Responsible Federal Budget, a deficit watchdog.

"You are going to have to attack health, Social Security and 'tax expenditures,' " says Barry Anderson, a former White House and CBO staffer, referring to the targeted tax credits and loopholes that often substitute for spending.

That isn't politics; it's arithmetic. The Center for American Progress, a Democratic think tank, crafted an illustrative scenario to get the deficit down to 3% of the overall economy by 2015.

On the list: a 75% cut in federal farm subsidies, a 50% cut in vocational and adult education, a 14.5% cut in the defense budget, an 8% cut for the National Institutes of Health, a 5% cut for the FBI, a 3.1% cut in veterans' disability benefits, etc.

A left-right plan by the U.S. Public Interest Research Group and National Taxpayers Union would wipe out $62 billion in business subsidies.

Brian Riedl at the conservative Heritage Foundation says he can save $343 billion next year. His recipe: Cut $15 billion in farm subsidies, $10 billion in aid to states, $8 billion in aid to college students, $8 billion more by lower cost-of-living adjustments to Social Security and other benefits, and so on. Will Republicans embrace any of these?

With control of the House, Republicans will have to offer and try to pass a budget of their own next year. That offers a test of their spending-cut resolve. This is going to be interesting.

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